May 3, 2011 / 1:02 PM / in 6 years

UPDATE 3-WestJet earnings surge but Q2 may be more muted

* WestJet monitoring impact of fare increases

* Says Q1 RASM increase will be tough to match in Q2

* Q1 EPS C$0.34 vs C$0.02 last year (Recasts with comments from conference call, analysts)

By Nicole Mordant

VANCOUVER, May 3 (Reuters) - WestJet Airlines Ltd (WJA.TO), Canada's No. 2 carrier, reported a 20-fold jump in quarterly earnings on Tuesday, lifting its stock, as fare increases introduced to offset higher fuel prices failed to dent passenger demand.

The company raised fares four times in the first three months of the year -- to counteract what it called stubbornly high fuel costs -- without scaring off passengers. But it said that may not be a pattern it can repeat.

"Thus far we believe we have been able to find the right balance of fare increases and market absorptions," WestJet Chief Executive Gregg Saretsky said on a conference call. "However, we remain cautious and are carefully monitoring both demand and the impact of these fare increases."

WestJet had a strong second quarter last year, partly because of an everyday low-pricing strategy, which it said may make it tough for it to show as big a gain on a comparative basis in this year's second quarter as it did in the first.

The key top-line comparative measure for airlines is revenue per available seat mile, or RASM.

"I wouldn't expect to see RASM increases on the order of the magnitude that we've seen so far this year," Saretsky said. WestJet's RASM was up 12.1 percent in the first quarter.

STOCK JUMPS NEARLY 5 PCT

The carrier's stock was up nearly 5 percent on Tuesday afternoon on the Toronto Stock Exchange at C$14.95. By comparison, shares of Air Canada Inc ACa.TO ACb.TO, the country's largest airline, were down 2.6 percent at C$2.23.

"This is the second consecutive quarter of much better than expected results for WestJet, suggesting that there is very positive momentum behind this story," said Raymond James analyst Ben Cherniavsky.

WestJet, reporting its 24th consecutive quarterly profit, an unusual feat for an airline, said its January-March profit rose to C$48.2 million ($50.7 million), or 34 Canadian cents a share, from C$2.4 million, or 2 Canadian cents a share, a year earlier.

That was well ahead of analysts' forecasts for earnings of 18 Canadian cents a share.

Revenue of C$772.4 million, up 25 percent, also beat market expectations.

Costs per available seat mile (CASM) rose 4.5 percent in the quarter on the back of rising fuel costs, but declined 3.3 percent after fuel and employee profit-sharing expenses were stripped out.

"The key here is that although fuel prices remain a headwind, WestJet's controllable costs are in check and are providing a base for growing profits as demand remains robust," RBC Capital Markets analyst Walter Spracklin said.

WestJet, which started as a low-cost carrier modeled on Southwest Airlines Co (LUV.N) 15 years ago, expects adjusted CASM to be relatively flat in the first half of the year, compared with last year.

Last week, the airline announced more flights and service perks on flights between Toronto, Montreal and Ottawa as it tries to lure more business passengers.

Asked if WestJet, which flies only Boeing next-generation 737 aircraft, would expand from a single-plane type fleet, Saretsky said: "Yes, we expect at some point to be into another fleet type. But it's not going to happen in 2011."

$1=$0.95 Canadian Additional reporting by Arnika Thakur in Bangalore; editing by Peter Galloway

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